Brazilian Economic Outlook-17ed, December 2012

7/30/2019 Brazilian Economic Outlook-17ed, December 2012

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17 Edition |December | 2012th

Brazilian Economic

OUTLOOK Ministry ofFinanceB R A Z I L I A N G O V E R N M E N T


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3

Foreword

Economic Activity

Employment and Income

Ination

Interest Rates and Credit

Fiscal Policy

External Sector

International Overview

Glossary

Summary

7

9

35

53

61

81

93

111

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NOTE

The Brazilian Economic Outlook Report is published by the Ministryo Finance. It consolidates and updates the main macroeconomicvariables related to the Brazilian economy. The report is coordinatedby the Economic Policy Secretariat (SPE) with the contribution o the

ollowing Ministry o Finances bureaus: National Treasury Secretariat(STN), International Aairs Secretariat (SAIN), Secretariat or EconomicMonitoring (SEAE) and Federal Revenue Secretariat (RFB). Data used inthe report were updated untilDecember 6th, 2012.


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Foreword

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Brazilian economy prepared or a sustained economic growth

The Brazilian economy has shown strength in 2012, even with advanced economies remaining sluggish and world

trade stagnated. Growth accelerated in the third quarter, and the economic outlook or 2013 is strong.

In order to boost the countrys productive capacity even urther, this Administration has given incentives orinvestment and production, which have been showing consistent results. Not only do public sector investments playan important role, with emphasis on the Growth Acceleration Program (PAC 2), but also private investments are keyto economic growth.

Public-private partnerships to und relevant inrastructure projects are being stimulated, and incentives or thedevelopment o a long-term private credit market in Brazil are being implemented. As or production, payroll taxexemptions measures as well as energy cost actions have been taken, with benets or several economic sectors.

Brazil is experiencing a very promising new macroeconomic balance with low interest rates and reduced nancialcosts o investment, a more competitive exchange rate, and sound scal results. The outcome o these measures hasstarted to take eect, but a large part o their eects is still in the pipeline.


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B R A Z I L I A N G O V E R N M E N T

EconomicActivity


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Under the world economic slowdown, the Brazilian economy grew 2.4% in annual terms during the third quarter

o 2012, showing that the countrys economic activity is resilient. In addition to that, data already released showpositive results or ourth quarter. The economic outlook or 2013 is promising.

This Administration has taken a series o measures to increase the countrys competitiveness, encouraging investmentand production. For instance, inrastructure investments, through the PAC 2 and concession programs, are already inplace. Moreover, the payroll tax relie or 40 sectors, the program or reducing energy costs, and the new automotiveregime or 2013-2017 are other measures which ensures growing productive capacity.

Recovery in economic activity


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GDP Growth (% QoQ, sa)

Data: % change rom precedingquarter, seasonally adjusted

Source:IBGE

Produced by:Ministry o Finance

Growth accelerates

Even lower than expected, the GDP growth in the third quarter o 2012 is higher than the previous quarters,

indicating a recovery path. The Government stimulus measures have shown initial results, which tend tostrengthen in the coming months.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Q3 2012Q2 2012Q1 2012Q4 2011Q3 2011Q2 2011Q1 2011

0.7 0.50.1 0.1 0.1

0.2 0.6


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GDP Growth Rate: Demand and Supply (% QoQ, sa)

Q2 2012

Q3 2012


Source:IBGE


Economic growth: supply and demand

From a supply-side perspective, the 3rd-quarter output was driven by the perormances o the agricultural

(2.5%) and industrial sectors (1.1%), highlighted by manuacturing and civil construction industries. Froma demand-side perspective, household consumption supported GDP growth (0.9%).

-2-1

0

1

2

3

4

5

6

7

8

Gross FixedCapital

Formation

GovernmentConsumption

HouseholdConsumption

GDPServicesIndustryAgricultural

Supply Demand

2.5

1.1

0.0 0

.6 0.9

0.1

6.8

0.5

0.2 0

.7 1.0

-2

.0

-1

.8

-1

.6


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Contributions to GDP Growth: Supply Side (% YoY)

GDP

Taxes

Services

Industry

Agricultural

Data: % change rompreceding year

* On a 4-quarter basis

Source:IBGE


Brazil: supply-side GDP growth

2007 2008 2009 2010 2011 2012*

6.1

5.2

7.5

-0.3

2.70.9

1.1

3.5

1.3

0.2

1.1

2.8

1.0

0.3

-1.3-0.2

0.0

1.2

1.6

3.2

2.4

0.3

0.6

1.6

0.4

0.2

0.2

0.80.03

-0.2


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Contributions to GDP Growth: Demand Side (% YoY)

GDP

Inventories

Exports

GFCF

Government Consumption

Household ConsumptionImports


* On a 4-quarter basis

Source:IBGE


Brazil: demand-side GDP growth

2007 2008 2009 2010 2011 2012*

6.1

5.2

-0.3

7.5

2.7

0.9

0.9

2.3

3.7

1.0

0.5

-2.3

0.5

2.4

3.4

0.1

0.6

-1.8

1.0

0.6

2.6

-2.1

-1.2

-1.3

3.9

0.9

4.2

-4.0

1.3

1.3

0.50.9

0.42.4

-0.4

-1.2

0.6

1.6

0.1

-0.7

-0.5

-0.2


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Components o the Service Sector (% QoQ, sa)


Source:IBGE


GDP growth in 3rd quarter: the behavior o the service sector

Brazils service sector did not grow in the 3rd quarter o 2012, as the nance sector shrank by 1.3%.

-1.5

-1.2

-0.9

-0.6

-0.3

0.0

0.3

Administration,

health and

education

Real estate

and rentals

Other

services

Financial

intermediation

and related services

Information

services

Transport,

storage and mail

Trade

0.6

0.4

-0.1

0.5

-1.3

0.3 0.4 0.1


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GDP, Household Consumption and Investment (% YoY)

GDP

Household Consumption

Investment

Data: % changerom preceding year

Source:IBGEProduced by:Ministry o Finance

Investment growing more than GDP since 2006

Except or the 2008 nancial crisis, since 2006 investment in Brazil has grown much aster than GDP. On

the 2006-2011 average GDP rose 4.2 percent, whilst Investment grew 9.1 percent. This is also more thanhousehold consumption growth (5.4 percent growth on average).

-10

-5

0

5

10

15

20

25

-0.3

9.8

13.9

13.6

-6.7

21.3

4.7

9.1

5.2

6.1

5.7

4.4

6.9

4.1

5.4

4.0

6.1

5.2

7.5 2

.7 4.2

Average

2006-2011

201120102009200820072006


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Industrial Production Index (index number, sa)

Data: index number, seasonallyadjusted (average 2002 = 100)

Source:IBGE


Industrial production points to growth recovery

Industrial production increased by 0.9% in October 2012 against September, sustained mainly by the

manuacturing o intermediate goods (0.6%). The third quarter o 2012 had already recorded an 1.1%expansion. The result strengthens the optimism in relation to the activity recovery or the industrial sector.

90

95

100

105

110

115

120

125

130

135

Oct2

012

Sep20

12

Jun2

012

Mar

2012

Dec201

1

Sep20

11

Jun2

011

Mar

2011

Dec201

0

Sep20

10

Jun2

010

Mar

2010

Dec200

9

Sep20

09

Jun2

009

Mar

2009

Dec200

8

Sep20

08

Jun2

008

Mar

2008

Dec200

7

Sep20

07

127.0


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Installed Capacity Utilization Level (%)

FGV

FIESP*

Data: %

* Sao Paulo State, only

Source:CNI, FGV and FIESP


Capacity utilization

FGVs Installed Capacity Utilization Level (NUCI) registered a 84% level in November 2012, whereas the CNI

NUCI has been relatively unchanging between August and September. It is expected an increase towardsa ull-load sustained output in the ourth quarter, reecting the recovery in industrial production andreduction in inventories.

75

77

79

81

83

85

87

89

84.0

81.1

Nov20

12

Sep20

12

Jul2

012

Apr2

012

Jan20

12

Oct2

011

Jul2

011

Apr2

011

Jan20

11

Oct2

010

Jul2

010

Apr2

010

Jan20

10

Oct2

009

Jul2

009

Apr2

009

Jan20

09

Oct2

008

Jul2

008

Apr2

008

Jan20

08

Oct2

007


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Retail Trade Survey (% YoY)

PMC

Broad PMC*


* Including vehicles, motorcycles,

parts and pieces, and buildingmaterials

Source:IBGE


Robust retail sales

Both retail sales indicators ollow an acceleration trend, registering 8.1% and 6.6% on a 12-month basis,

respectively.

8.1

6.6

0

2

4

6

8

10

12

14

Sep20

12

Jul2

012

May

2012

Mar

2012

Jan20

12

Nov2

011

Sep20

11

Jul2

011

May

2011

Mar

2011

Jan20

11

Nov2

010

Sep20

10

Jul2

010

May

2010

Mar

2010

Jan20

10

Nov2

009

Sep20

09


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Condence Indexes: Services and Industry (points, sa)

Services Condence Index

Industry Condence Index

Data: points, seasonally adjusted

Source:FGV


Stronger condence

Services and Industry Condence Indexes are showing grounds or optimism. Services condence showed

a third consecutive monthly rise, and industry condence has also improved. Both indicators signal thecontinuation o the economic recovery during the ourth quarter o 2012.

9095

100

105

110

115

120

125

130135

140

125.4

105.2

Nov2

012

Oct2

012

Sep2

012

Aug2

012

Jul2

012

Jun2

012

May

2012

Apr2

012

Mar

2012

Feb2

012

Jan2

012

Dec201

1

Nov2

011

Oct2

011

Sep2

011

Aug2

011

Jul2

011

Jun2

011

May

2011

Apr2

011

Mar

2011

Feb20

11

Jan20

11

Dec201

0

Nov2

010


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Vehicle Production (% YoY)

Data: % change romsame month previous year

Source:Anavea


Vehicle production boosted by Government stimulus measures

Vehicle production has been expanding, driven by stimulus measures, such as IPI rate benet or vehicles,

eective until December 31, 2012. In October, production increased by 20.2%, compared to the sameperiod o 2011. It is expected an annual record in production in the last two months o the year.

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

Oct2

012

Sep20

12

Aug20

12

Jul2

012

Jun20

12

May

2012

Apr2

012

Mar

2012

Feb20

12

Jan20

12

Dec201

1

Nov2

011

Oct2

011

Sep20

11

Aug20

11

Jul2

011

Jun20

11

May

2011

Apr2

011

Mar

2011

Feb20

11

Jan20

11

Dec201

0

Nov2

010

Oct2

010

10.1

2.

4

24.5

2.6

2.3 4

.1 6.2

4.5

1.2

20.2

-4.2

-7.2

-6.2 -

26.1

-3.6

-11.4

-7.5

-7.7

-7.5

-9.7

-9.1

-1.0

5.5

6.9

8.2


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Manuacturing PMI (index)

Data: index

* Values above 50

indicate growth

Source:Bloomberg


Promissing economic activity outlook according to PMI indicators

Manuacturing PMI points to economic activity expansion. It shows clear recovery trend, increasing ve

months in a row since July. In November, it was the highest level since April 2011.

44

46

48

50

52

54

56

58

60

52.20

Nov2

012

Sep20

12

Jul2

012

May

2012

Mar

2012

Jan20

12

Nov2

011

Sep20

11

Jul2

011

May

2011

Mar

2011

Jan2

011

Nov2

010

Sep2

010

Jul2

010

May

2010

Mar

2010

Jan2

010


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Household Consumption in 2020: Selected Countries (R$ trillion)

Data: R$ trillion

Source:Exame Magazine, Mckinsey

Consulting and Fecomercio


Brazilian consumer market will be the worlds 5th largest

In 2020, Brazil will be the worlds 5th largest consumer market (around R$ 3.5 trillion orecast or household

consumption). It is the result o the outstanding income improvement or Brazilians over the last years,besides being a great encouragement or new investments.

0

5

10

15

20

25

ItalyUK

Fran

ce

Brazil

Germ

any

Japa

n

China

USA

20.4

10.9

7

.0 4.4

3.5

3.2

3

.0

2

.8

2010 2020

2.2 3.5trillion

trillion

trillion


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Consumer Market (position)

Data: position

Source:Exame Magazine, Mckinsey

Consulting, Escopo, Euromonitor,

Anavea and Abraciclo


Brazilian consumer market will attract more and more investments

Investors recognize the growing trend o the Brazilian consumer market and, despite the international

crisis, Brazil continues as one o the leading investment destinations.

Brazilian Consumption

Sector 2012 2020

Perfumery Articles 1st 1st

Automobiles 4th 3rd

Food and beverages 4th 3rd

Clothing 5th 3rd

Domestic Aviation 4th -

Motorcycles 4th 3rd

Computers 3rd -

Refrigerators 3rd -

Products for PetAnimals 3

rd 2nd


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Brazilian Grain Harvest (millions o tons)

Data: millions o tons

* Conab orecasts

Source:Conab/MAPA


Record or the Brazilian harvest

The Brazilian grain harvest in 2011/2012 states a new record-breaking achievement, equal to 166.2 million

o tons, despite the lower increase in the planted area. The growing trend o agricultural production is aresult o increasing investment in the sector, and an even better result is expected or 2012/2013.

70

80

90

100

110

120

130

140

150

160

170

180

2012

/2013*

2011

/2012

2010

/2011

2009

/201

0

2008

/2009

2007

/2008

2006

/2007

2005

/200

6

2004

/2005

2003

/200

4

2002

/2003

2001

/2002

2000

/2001

1999

/200

0

83.0

100.396.8

123.2119.1

114.7

122.5

131.8

144.1

135.1

149.3

162.8166.2

180.2


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Agricultural Production in Selected Countries (index number)

Brazil

Russia

India

China

USA

Canada

European Union

Data: index number(average 2005 = 100)

Source:FAO


Brazilian agriculture pushed to the oreront

Brazil is one o the worlds largest producer o agricultural goods and its production will grow even urther

in the coming years. Due to outstanding agricultural production, the country has already established itselas one o the main exporters o primary goods.

40

60

80

100

120

140

160

180

2019

2016

2013

2010

2007

2004

2001

1998

1995

1992

Estimates

2014


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Federal Government Investment (R$ billion and %)

2011

2012

Data: R$ billion and % change in

the period* YTD: year-to-date

Source:STN/Ministry o Finance


Federal investment has increased

Federal Government investment pace has increased in the last 12 months. Until October 2012, investments

are 22.9% above the same period last year.

0

10

20

30

40

50

60

OctSepAugJulJunMayAprMarFebJan

27.9%23.3%

22.9%

-1.0%3.3%

23.5%28.9%

30.2%

29.4%

30.7%

7.7

9.6

15.7

21.1

26.2

32.8

38.8

42.5

45.2

50.9

7.8

9.3

12.7

16.4

20.2

25.1

30.0

33.2

36.7

41.4


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Public Sector Investment* (% o GDP)

State-owned companies

States and MunicipalitiesGovernment

Data: % o GDP

* Only investments carriedout directly by the NationalGovernment (not includingtransers to States andMunicipalities, to privateinstitutions or MCMV, which are

accounted by the IBGE as GFCF);** Ministry o Finance orecast



Public investment is also increasing ast

The consolidated public investment is on an expansion track in 2012, contributing to better long-term

economic prospects.

0

1

2

3

4

5

1.6 1.5

1.5

1.3

0.80.8

0.9

1.1

1.1 1.0 1.0

1.0 1.1

1.4

1.8

1.9

1.7

1.9

1.7 1.8

1.5

2.0

1.31.5 1.5

1.8

1.3 1.4 1.3

1.61.4

1.8 1.7

2.0

1.71.8

2012

**

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

0.5 0.4 0.4 0.5 0.3 0.3 0.4 0.5 0.2 0.2 0.3 0.4 0.4 0.5 0.6 0.8 0.6 0.7

1.7 1.81.5

2.0

1.31.5 1.5

1.8

1.3 1.4 1.3

1.61.4

1.8 1.7

2.0

1.71.8

1.6 1.51.5

1.3

0.80.8

0.9

1.1

1.1 1.0 1.0

1.0 1.1

1.4

1.8

1.9

1.7

1.9


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Minha Casa Minha Vida Housing Program (R$ million)

Data: R$ million



Booming Federal investments

For 2011-2014, it is expected massive investment on government programs, specially or Minha Casa

Minha Vida housing program (R$ 2.4 billion by 2014). One million o homes have been delivered and 2million have been contracted up to October.

0

50

100

150

200

250

300

350

400

2012*201120102009

76.960275.138 289.642 359.399

Minha Casa Minha Vida1

Housing Program

Minha Casa Minha Vida 2

Housing Program


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PAC Spending: 2011-2012 (R$ billion)

2011

2012

Data: R$ billion

* YTD: year-to-date



PAC speeds up investments

PAC 2 investments have moved consistently upwards in 2012 compared to last year. For example, amounts

paid up to October 2012 (R$ 26.6 billion) are larger 27.7% than in 2011 (R$ 20.8 billion). As a result, therewill be increasing economic activity and higher countrys productive capacity.

0

5

10

15

20

25

30

5.6%19.1%

46.9%

50.0%

44.8%

52.6%36.3%

33.5% 35.1%

27.7%

3

.1

4.1

8.0

11.3

14.2

18.6

20.3

22.3

24.3

26.6

2.9

3.5

5.5

7.6

9.8

12.2

14.9

16.7

18.0

20.8

OctSepAugJulJunMayAprMarFebJan


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Petrobras Business Plan (US$ billion)

Data: US$ billion

* Released on June 14, 2012

Source:Petrobras


Petrobras: top 2 global energy investor

According to the International Energy Agency (IEA), Petrobras will invest US$ 47.3 billion in new projects

in 2012, just below Petrochina (US$ 48 billion). Also, Petrobras will remain as a major worldwideinvestor over the next our years, based on the companys business plan, which states a US$ 236.5billion investment or 2012-2016.

Business Plan - Petrobras*,

2012 to 2016 (US$ billion)Exploration and Production 141.8

65.5

Gas and Energy 13.8

Petrochemical 5.0

Distribution 3.6

Biofuel 3.8Corporate 3.0

Total 236.5

Rening, Transportation and trading


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Public Service Concession

Source:Secretariat o Civil Aviation


Concession Program will leverage investments in inrastructure

Inrastructure investments in Brazil will count on the private sectors active involvement. The airport

sector total investment will be approximately R$ 16 billion in the coming years, considering only airportconcessions in Brasilia, Guarulhos and Viracopos. Also, the Logistics Investment Program considers R$ 133billion or renovation and construction o ederal highways and railways. Around 60% (R$ 79.5 billion) willbe invested within 5 years.

Total Investment: R$ 133 billion (R$ 79.5 billionin 5 years and R$ 53.5 billion from 20 to 25 years

Airport Concession: Planned Investment R$ 16.2 billion

Investment on Highways R$ 42 billion(7.500 km)

(R$ 23.5 bi in 5 years and R$ 18.5 bi in 20 years)

Investment in Railways R$ 91 billion(10,000 km)

(R$ 56 bi in 5 years and R$ 35 bi in 25 years)

Guarulhos

Totalin 25 years

R$ 2.85 bi

Totalin 30 years

R$ 8.70 bi

ViracoposBraslia

Totalin 20 years

R$ 4.70 bi

Planned Investment = 16.2 bi

Mi i


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Energy Cost Reduction

* From January 2013

Source:Ministry o Mining and Energy


Government has adopted incentives to improve competitiveness

Among the measures aimed at increasing domestic rms competitiveness, the 20.2% average reduction

in energy prices is directed to the industrial sector. The measure will also benet consumers, reducingtheir energy bill.

Average reduction in eletricity prices*

Group Tari Voltage level Deduction (%)

High Voltage A

A1 230 kV or more 28.0

A2 88 to 138 kV 24.7

A3 69 kV 21.5

A3a 30 to 44 kV 20.0

A4 2,3 to 25 kV 19.4

AS Underground 19.7

Low Voltage B B lower than 2,3 kV 16.2

Average 20.2

Ministry


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Payroll Tax Exemption: 40 Sectors (R$ billion)

Data: R$ billion

* Without R$ 970 million in cash

ow relie

Source:Ministrio da Fazenda


Tax benets also stimulate competitiveness

The payroll tax relie or 40 sectors is another government measure to strengthen domestic rms

competitiveness and encourage ormal employment. Also, the construction sector has been included inthis tax benet increasing the tax exemption in more R$ 2.85 billion in 2013.

Estimates for 2013 (R$ billion)

Sectors

AFTER:

Payroll Tax

Relief*

40 Sectors 21.60 8.70 12.8

Civil construction 6.28 3.43 2.85

Total 27.88 12.13 15.65

BEFORE:

Social Security

Payroll Contribution

Social Security

Contribution on

Gross Revenues

(1% to 2%)


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Employmentand Income

Ministry


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36

EmploymentandIncome

The labor market remains a key element in the process o upward social mobility. In this context, the unemploymentrate reached 5.3% in October 2012 and approximately 1.7 million ormal jobs were created in the year. Thus, it isexpected that the increasing ormalization and the expansion o policies related to guarantee o basic income, accessto public services and productive inclusion continue driving the socioeconomic inclusion o the poorest.

The prospect is that the Brazilian economy will be even stronger with the increase o the middle class, or C class.According to the IPEA, the C class will incorporate 15 million people by 2014, reaching 59% o the population.This means an enormous consumption potential, which is undamental to stimulate an increase in the productivecapacity in Brazil.

It is also important to emphasize that the strengthening o the social saety net increases not only household

consumption, but also the quality o the workorce that enters the labor market. The pro-equity social policies havecontributed substantially towards the rise in labor productivity. In this sense, the share o the employed populationwith 11 years or more o schooling has increased rom 33.6% to 46.3% between 2004 and 2011. This is anotherstimulus towards new investment.

Inclusive growth driven by increased schooling

Ministry


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y

of Finance

DecemberEdition|Yea

r2012

37

EmploymentandIncome

Unemployment Rate* (%, nsa)

Data: % share o economicallyactive population, not

seasonally adjuste

Source:IBGE/PME


Lower unemployment rate at the lowest level

The job market has shown strong dynamism in 2012, expressed by the 5.3% unemployment rate in October2012, the lowest rate ever or the month.

3

6

9

12

15

5.30

Oct

201

2

Apr2

012

Oct

201

1

Apr2

011

Oct

201

0

Apr2

010

Oct

200

9

Apr2

009

Oct

200

8

Apr2

008

Oct

200

7

Apr2

007

Oct

200

6

Apr2

006

Oct

200

5

Apr2

005

Oct

200

4

Apr2

004

Oct

200

3

Ministry


38/137

of Finance


38

Employment

andIncome

Formal Employment: New Jobs** (thousands o jobs)

Data: thousands o jobs

* On a 12-month basis up to

October 2012

Source:MTE/CAGED and RAIS


Solid labor market in Brazil

Even with the downturn in economic activity, there was an increase o 1,689 million jobs year-to-date. FromJanuary 2003 to October 2012, more than 19.3 million jobs were created in Brazil. The constant creation oormal jobs shows that the Brazilian economy is ready to return to the growth path.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012*201120102009200820072006200520042003

861

1,8

6

3

1,8

3

1

1,9

1

7

2,4

5

2

1,8

3

4

1,7

6

6

2,8

6

1

2,2

4

2

1,6

8

9

Ministry

f Fi


39/137

of Finance


39

Employment

andIncome

Rate o Formalization and Contributors to Social Security (% o employed population)

Employed population witha ormal contract

Contributors to Social Security

Data: % share oemployed population

* Until 2003: except thepopulation o the rural areao Rondonia, Acre, Amazonas,

Roraima, Para, and Amapa States

Source:IBGE/PME


Greater social protection or workers

The quality o jobs in Brazil can be noticed by the level o ormalization. According to the MonthlyEmployment Survey, the proportion o ormally employed workers reached 53.7% on a 12-month basisup to October. Likewise, the share o contributors to social security reached 72.6% o the total employedpopulation in the same period.

20

35

50

65

80

2012*2011201020092008200720062005200420032002

63.0

60.1

60.1

62.8

63.2

64.8

66.4

66.1

69.2

71.9

72.6

45.5

43.5

43.8

45.5

46.1

47.6

49.2

49.3

51.6

53.6

53.7

Ministry

of Finance


40/137

of Finance


40

Employment

andIncome

Nominal Minimum Wage Evolution (R$)

Data: R$

* PLOA 2013 orecast

Source:Central Bank o Brazil


Minimum wage policy insures real gain

The growth acceleration in recent years has caused a signicant expansion o per capita income in Brazil.As a result o governmental policies, minimum wage will increase 72% in real terms rom 2003 to 2013.

0

100

200

300

400

500

600

700

Jan20

13*

Jan2

012

Mar

2011

Jan2

011

Jan2

010

Feb20

09

Mar

2008

Apr2

007

Apr2

006

May

2005

May

2004

Apr2

003

Apr2

002

72%

20

0

24

0

26

0

30

0

35

0

38

0

41

5

46

5

51

0

54

0

54

5

62

2

67

1

Ministry

of Finance


41/137

of Finance


41

Employment

andIncome

Minimum wage purchasing power or Washing Machine: 1994-2012 (R$)

Minimum Wage (R$)

Nominal Price o WashingMachine (R$)

Washing Machine/MinimumWage Ratio

Data: R$

Source:IBGE, GK and LCA


Restoring the purchasing power o the minimum wage

0

200

400

600

800

1,000

1,200

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

0

1

2

3

4

5

6

7

8

9

1.5

622

930

(R$)

1994: a worker would spend 8 months worth o minimum wage to be able to aord a Washing Machine.

2012: he/she would spend only 1.5 months worth o minimum wage.

Ministry

of Finance


42/137

DecemberEdition|Year

2012

42

Employment

andIncome

Minimum wage purchasing power or stoves: 1994-2012 (R$)

Minimum Wage (R$)

Nominal Price o Stove (R$)

Stove/Minimum Wage Ratio

Data: R$

Source:IBGE, GK and LCA


Restoring the purchasing power o the minimum wage

0

100

200

300

400

500

600

700

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.5

622

330

(R$)

1994: a worker would spend 1.9 months worth o minimum wage to be able to aord a stove.

2012: he/she would spend only 0.5 months worth o minimum wage.

Ministry

of Finance


43/137


2012

43

Employment

andIncome

Bolsa Familia: Income Transer Program (R$ billion, millions o households and % o GDP)

R$ billions

Millions o households

% o GDP

Data: R$ billion, millions ohouseholds and % o GDP

* On a 12-month basis up to

October 2012

Source:MDS


Bolsa Famlia Program helps to reduce poverty

Bolsa Familia Program is recognized as one o the most efcient programs in reducing inequality due to itsocus on the poorest population. Besides being cost efcient, it reaches more than 13.7 million households.

0

5

10

15

20

25

0.0

0.1

0.2

0.3

0.4

0.5

2012*20112010200920082007200620052004

20.41

13.76

0.2 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.5

Ministry

of Finance


44/137


2012

44

Employment

andIncome

People with No Specic Social Need (% o population)

2001*

2011

Data: % share o population

* Except the rural populationo Rondonia, Acre, Amazonas,

Roraima, Para and Amapa States

Source:IBGE/PNAD


Reduction o social needs

The social saety net has impacted the promotion o rights signicantly. It has enabled people to haveaccess to education, social security, housing and basic ser vices. Under the human rights perspective, it hasbeen possible to ensure the wellbeing o the most vulnerable.

50

60

70

80

90

100

Access to Basic ServicesQuality HomesAccess to Social SecurityNo Educational Delay

68.8 78.7 96.0 67.860.7 63.6 95.1 59.1

Ministry

of Finance


45/137


2012

45

Employment

andIncome

Real Income Growth in Income Groups: 2004-2011* (%)

Data: % o simple classes,average monthly income romall jobs

* Except inormation rom

people with no declarationo income rom all jobs.Deated by INPC index.

Source:IBGE/PNAD


Income growth especially or the poorest

The real income growth was signicant or the period rom 2004 to 2011. Even more relevant than the29.8% total expansion was the income growth or the 20% poorest o the population, which amounted toaround 75%.

0

10

20

30

40

50

60

70

80

Morethan

90to

100

Morethan

80to

90

Morethan

70to

80

Morethan

60to

70

Morethan

50to

60

Morethan

40to

50

Morethan

30to

40

Morethan

20to

30

Morethan

10to

20

Upto

10

Total

29.8 73.8 75.3 48.5 49.9 43.8 38.4 36.5 30.3 24.8 20.8

20%poorest

20%richest

Income deciles

Ministry

of Finance


46/137


2012

46

Employment

andIncome

Gini Index: Average Real Earnings** (index)

Data: Measurement rangesrom zero (perect equality) to 1(maximum inequality)

* Excludes the rural population othe ollowing states: Rondnia,Acre, Amazonas, Roraima, Parand Amap

** People over 10 years o age.Based upon the per capita Income

Source:IBGE/PNAD


Declining income inequality in Brazil

The Gini Index, used to measure income inequality, has allen steadily, rom 0.559, in 2004, to 0.508, in2011. The decrease comes rom more years o schooling o the poorest population, alongside with theexpansion o conditional income transer programs and more social inclusion opportunities.

0.50

0.55

0.60

0.6

0.6

0.6

0.6

0.6

0.5

2011

2009

2008

2007

2006

2005

2004

2001

*

1990

*

1981

*

0.564

0.602

0.5520.548

0.5340.530

0.524

0.508

0.572

0.559

0.65

Ministry

of Finance


47/137


2012

47

Employment

andIncome

Recent-Progress SEDA Score (index)

Brazil

Average BRIC

Data: index

* SEDA assesses the perormanceo 150 nations around the worldacross a series o dimensionsincluding governance, education,inrastructure and economicstability with the aim o seeingwhich countries are perorming

best in improving well-beingand economic opportunitiesor their citizens.

Source:Boston Consulting Group


Brazil stands out in the SEDA score

For most o the 10 categories o New Sustainable Economic Development Assessment (SEDA) launchedby the Boston Consulting GroupBoston Consulting Group index, Brazil has scored better than the BRICS

average. Brazil, Poland, Indonesia and New Zealand are improving aster than GDP growth would suggest.When it comes to translating wealth into citizen well-being the report reveals a strong correlation betweenthe best perorming nations and good governance.

0

20

40

60

80

100

Infrastructure

Environment

Health

Education

Governance

CivilSociety

Income

Equality

Employment

Economic

Stability

Income

29

2027

21

58

Brazil

AverageBRIC

Ministry

of Finance

15 million additional Brazilian people can be included in the new


48/137


2012

48

Employment

andIncome

Social Classes (million o people)

Data: million o people

* Forecasts. Baseline: 6,5% YoYincome growth rate

Source:IBGE and IPEA


15 million additional Brazilian people can be included in the newmiddle class

The growth o ABC classes and consequent reduction o DE classes have been translated into povertyreduction and better income distribution, both playing a key role to the expansion o the domestic market.

According to IPEA orecasts, C class should correspond to 59% o population by 2014.

A Class

B Class

C Class

D and EClasses

Total: 175 million Total: 188 million Total: 192 million Total: 196 million

2003 2009 2011 2014*

6.3

7.0

65.9

96.2

9.6

10.4

73.3

94.9

12.6

14.5

115.2

53.8

10.5

11.2

100.3

69.6

Ministry

of Finance


49/137


2012

49

Employment

andIncome

Household Consumption and Broadly Dened Payroll* (% Q/Q)

Household consumption

Broadly dened payroll

Data: % change same quarterprevious year, annualized

* Including lwages, dividends,saaries, social security benets,Bolsa Familiaand others. YTDOctober.

Source:IBGE, MDS, FGTS and STN


Impact o social inclusion on demand

The 8.3% interannual increase o broadly dened payroll in the third quarter o 2012 boosted householdconsumption, sustaining the domestic market strength.

-6-4

-2

0

2

4

6

8

10

12

14

Sep20

12

Jun20

12

Sep20

11

Dec201

0

Mar

2010

Jun20

09

Sep20

08

Dec200

7

Mar

2007

Jun20

06

Sep20

05

Dec200

4

Mar

2004

Jun20

03

Sep20

02

Dec200

1

Mar

2001

Jun20

00

8.3

3.4

Ministry

of Finance


50/137


2012

50

Employment

andIncome

People Employed with more than 11 Years o Schooling (% o total)

Data: % o total

Source:IBGE/PNAD


More qualied workers

One o the main elements or reducing income inequality and improving productivity is the educationallevel. Between 2004 and 2011, occupied population with more than 11 years o schooling went rom 33.6%

to 46.4%, respectively.

20

26

32

38

44

50

2011200920082007200620052004200320022001

28.8 30.7 32.5 33.6 35.2 37.4 39.0 41.2 43.2 46.4

Ministry

of Finance


51/137


51

Employment

andIncome

Qualied Beginning Employees** and First Job Admissions (% and millions)

Share o Qualied BeginningEmployees

First Job Admissions (millions)

Data: % share and millions

* On a 12-month basis upto October 2012

** At least completed

High School

Source:MTE/CAGED


Growing opportunities in the youth labor market

The growth o the Brazilian economy increased the number o job opportunities or young people, whichhas been accompanied by an improvement in their level o education. According to CAGED, in 1996, 1.7

million new workers were hired, while 17.2% had at least completed high school. On a 12-month basis upto October 2012, the gures were 2.8 million and 54.9%, respectively.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

10

20

30

40

50

60

2012

*

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

2.83.13.02.52.82.52.32.32.11.81.91.91.91.61.81.7 1.7

54.953.953.3

51.348.8

47.246.0

43.3

39.6

36.4

33.6

31.5

28.7

25.7

22.0

19.417.2


52/137


53/137

Brazilian Economy

OUTLOOK

Ministry ofFinance


Infation

Ministry

of Finance

I ti t d t l


54/137


012

54

Infation

Consumer price ination rates increased in the third quarter o 2012, driven mainly by the impact o extreme weatherconditions on agricultural production. The combination o higher than usual pressures in some resh ood prices in the

Brazilian domestic market, and in important agricultural commodities in the international market, due to the droughtin the US, caused an acceleration o ination in mid-2012, which peaked in October.

Since then, ination pressures have begun to ease, as producer prices related to important items such as soybeans,corn and wheat are clearly pointing to a retreat to lower levels. As well as that, several resh ood items are showingmonthly deation rates. This scenario shows that more relie should arrive in coming months, helping bring downconsumer price ination and also helping to drive the yearly IPCA to the center o the target set by the NationalMonetary Council.

Ination rate under control

Ministry

of Finance

I

Ination ithin the target range


55/137


012

55

Infation

CPI Ination - IPCA Index (% YoY)

Ination Target

Upper and Lower Bounds

IPCA


* According to the Central Banko Brazils Ination Report(September 2012)

Source:IBGE and Central Bank o Brazil


Ination within the target range

In the rst hal o 2012, the reduction o monthly ination was signaling that the 12-month ination ratewould move around the ination central target in Brazil. In the second hal, however, signicant increases

in some agricultural commodities, primarily related to the eects o the U.S. drought, pressured consumerprices, driving IPCA ination to a level slightly above the central target, but within the tolerance bounds.

0

2

4

6

8

10

12

14

2012

*

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

8.9 6.0 7.7 12.5 9.3 7.6 5.7 3.1 4.5 5.9 4.3 5.9 6.5 5.2

Ministry

of Finance

I

Agricultural shocks afected CPI ination


56/137


012

56

nfation

Agricultural Prices and IPCA Index (% 3-mth ma)

IPCA

IPA-DI Agricultural Index

Data: % change on a3-month moving average

Source:IBGE


Agricultural shocks afected CPI ination

The CPI-Food ination represents 25% o the total Brazilian IPCA and responds with lags to changes inproducer ood prices. It means that the current slowdown in PPI-Food ination, measured by the IPA-

Agricultural index will ease IPCA ination in the coming months.

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

Oct2012

Aug2012

May

2012

Feb2012

Nov2

011

Aug2011

May

2011

Feb2011

Nov2

010

Aug2010

May

2010

-5

0

5

10

15

20

Ministry

of Finance

IAter reaching its peak in October ination starts to decline


57/137


012

57

nfation

CPI Ination - Chained IPCA and IPCA-15 Indexes (% MoM)

Data: % change rompreceding month

Source:IBGE


Ater reaching its peak in October, ination starts to decline

Consumer prices in Brazil rose at their astest pace in October 2012, mainly due to the eects o the droughtin the US. Since then, IPCA ination has started to decline, which is a trend that is expected to continue in

the coming months.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

IPCA

IPCA-15

Nov2012

Oct2012

Sep2012

Aug2012

Jul2012

Jun2012

May2012

Apr2012

Mar2012

Feb2012

Jan2012

Dec2011

Nov2011

Oct2011

Sep2011

0.5

3

0.5

3

0.4

2

0.4

3

0.4

6

0.5

2

0.5

6

0.5

0

0.6

5

0.5

6

0.5

3

0.4

5

0.2

5

0.2

1

0.4

3

0.6

4

0.5

1

0.3

6

0.1

80.0

8

0.3

3

0.4

3

0.3

9

0.4

1

0.4

8

0.5

7

0.6

5

0.5

9

0.5

4

Ministry

of Finance

InGeneral Price Index already decelerating


58/137


012

58

nfation

Ination: IGP-M and Main Components (% YoY)

IGP-M

IPA-M

INCC-M

IPC-M

Data: % change rom precedingyear on a 12-month basis

Source:FGV


General Price Index already decelerating

Ater two consecutive quarters o acceleration, the 12-month General Price Index (IGP-M) ination started adecreasing trend, reaching a percentage below 7.0% in November 2012. Lower producer prices (measured

by the IPA index) in the past two months have played an important role in easing the pressure on theBrazilian IGP ination.

-6

-3

0

3

6

9

12

15

Nov2

012

Sep20

12

Jul2

012

May

2012

Mar

2012

Jan20

12

Nov2

011

Sep20

11

Jul2

011

May

2011

Mar

2011

Jan20

11

Nov2

010

Sep20

10

Jul2

010

May

2010

Mar

2010

Jan20

10

Nov2

009

7.33

6.96

7.30

5.77

Ministry

of Finance

InDeationary trend in producer prices


59/137


012

59

nfation

General Price Indexes (chained) (% MoM)

Data: % change rompreceding month

Source:FGV


Deationary trend in producer prices

As prices o agricultural commodities began to decline, producer prices in Brazil also star ted to cool down,and the latest IPA measurements have been showing deation since October 2012. Raw materials, or

instance, decreased by 1.86% in the October IGP-DI. The trend is likely to aect other prices along thesupply chain.

October 2012 November 2012

IGP-10 IGP-M IGP-DI IGP-10 IGP-M

IGP 0.42 0.02 -0.31 -0.28 -0.03

IPA 0.40 -0.20 -0.68 -0.57 -0.19

Production stage

Final goods 0.60 0.07 -0.44 -0.70 -0.5

Intermediate goods 0.67 0.41 0.07 0.09 0.25

Basic goods -0.16 -1.24 -1.86 -1.24 -0.41

Origin

Agriculture 0.53 -0.57 -1.34 -1.10 -0.41

Industrial 0.34 -0.05 -0.42 -0.35 -0.1IPC 0.57 0.58 0.48 0.36 0.33

INCC 0.24 0.24 0.21 0.22 0.23

Construction ser vices and materials 0.50 0.49 0.42 0.35 0.22

Labor 0.00 0.01 0.01 0.09 0.24


60/137


61/137

Brazilian Economy

OUTLOOK

Ministry ofFinance


Interest Ratesand Credit

Ministry

of Finance

IntInterest rate at its lowest level ever


62/137


62

terestRates

and

Credit

From August 2011 up to October 2012, the Central Bank o Brazil lowered the policy rate by 525 basis-points, bringingboth nominal and real rates to their lowest levels in the recent Brazilian monetary history. In act, spreads and lending

rates in the nancial system have also allen to record lows, although still at high levels.

Brazil is now even more ocused on encouraging the development o the capital and long-term private credit markets.The countrys nancial system is sound, operating in accordance with Basel principles, and it is actively participatingin the development o important nancial instruments, such as nancial bills, FDICs, debentures, and other long-termcorporate bonds.

As a matter o act, this new environment o lower interest rates and investment opportunities has already begun toinuence the decision-making process o economic agents. It will positively impact investment and production even

urther, as investors leave behind the time when the Brazilian economy was used to high short-term interest rate.

Interest rate at its lowest level ever

Ministry

of Finance

Int

Real interest rate at its lowest level due to sound macroeconomicundamentals


63/137


63

terestRates

and

Credit

Brazil: Real Ex-Ante Interest Rates* (% pa)

Data: % per annum

* 360-day swap deated byination expectations or the 12months ahead; 2012: November30; 2001-2011: December 31



undamentals

Short-term real interest rates in Brazil have been showing a signicant decrease or the past ten years, rom14.0% in December 2002 to 1.8% in November 2012. For the last 10 years, it has been a result o credible

and sound monetary and scal policy coordination.

0

4

8

12

16

2012**2011201020092008200720062005200420032002

Average

2002-2005 = 11.5

Average

2006-2010 = 6.9

Average

2011-2012 = 3.2

14.0 9.4 11.2 11.4 7.9 7.7 6.9 5.8 6.2 4.5 1.8

Ministry

of Finance

IntSelic benchmark interest rate at its lowest level ever


64/137


64

terestRatesand

Credit

Real and Nominal Interest Rates* (% pa)

SELIC interest rate target

Real ex-ante interest rate*

Data: % per annum

* 360-day swap deated byination expectations or the12 months ahead



Central Bank o Brazil has reduced its benchmark interest rate (Selic) since August 2011. The latest reductionin October 2012, rom 7.50% to 7.25%, implied the lowest rate ever. The real interest rate reached 1.80%

on November 30, 2012.

1.80

7.25

0

5

10

15

20

25

30

Nov20

12

Oct2

012

Apr2

012

Oct2

011

Apr2

011

Oct2

010

Apr2

010

Oct2

009

Apr2

009

Oct2

008

Apr2

008

Oct2

007

Apr2

007

Oct2

006

Apr2

006

Oct2

005

Apr2

005

Oct2

004

Apr2

004

Nov20

03

Ministry

of Finance

IntLong-term interest rates declining in Brazil


65/137


65

terestRatesand

Credit

Interest Rates: DI Contracts* (% pa)

Jan 2013

Jan 2014

Jan 2015

Data: % per annum

* DI: one-day interbank depositsSource:Central Bank o Brazil


g g

Ater a widespread decline throughout the last 12 months, the long-term rates traded in the utures DIstabilized at a level close to the current Selic rate. The dierence between the curves expresses the risk

associated with the exposure duration.

7.2

7.8

7.17

8

9

10

11

12

13

Nov20

12

Oct2

012

Jul2

012

Apr2

012

Jan20

12

Oct2

011

Jul2

011

Apr2

011

Jan20

11

Oct2

010

Jul2

010

Apr2

010

Jan20

10

Ministry

of Finance

Inte

Lower Selic rate and banking spreads benet borrowers


66/137


12

66

erestRatesand

Credit

Interest Rates and Average Maturity (% pa and days)

Average maturity (days)

Interest rates (% YoY)

Data: % per annumand number o days

Source:Central Bank o BrazilProduced by:Ministry o Finance

Lower interest rates and banking spreads have been benetting nal borrowers. Interest rates on loansto individuals reached 35.4 percent, whereas rates on loans to corporations reached 22.1 percent. These

percentages are well below the 2011 average and show sharp decline throughout 2012, with reductionso 9.7 p.p. and 6.6 p.p. or individuals and corporations, respectively. In the opposite direction, averagematurity signaled slight increase in the period.

300

350

400

450

500

550

600

650

40

45

50

55

60

Oct2

012

Jun2

012

Dec2011

Jun2

011

Dec2010

Jun2

010

Dec2009

Jun2

009

Dec2008

May

2008

200

250

300

350

400

450

20

24

26

28

30

32

34

Oct2

012

Jun2

012

Dec2011

Jun2

011

Dec2010

Jun2

010

Dec2009

Jun2

009

Dec2008

May

2008

Individuals Corporations

620.5

35.4

431.8

22.1

Ministry

of Finance

Inte

Credit becomes easier and cheaper


67/137


12

67

erestRatesand

Credit

Average Interest Rate on Lending or Individuals and Corporations (% YoY)

Jan 2012

Oct 2012

Data: % change rom

the preceding year



Credit has become easier and cheaper to individuals and corporations in Brazil. The average interest rateon lending to individuals dropped 9.7 percentage points year-to-date up until October 2012, rom 45.1%

to 35.4%. As or the average rate on lending to corporations, it ell by 6.6 percentage points over the sameperiod, rom 28.7% to 22.1%.

0

10

20

30

40

50

CorporationsIndividuals

35.4 22.145.1 28.7

Ministry

of Finance

Inte

Lower banking spread to individuals and corporations


68/137


12

68

erestRatesand

Credit

Banking Spread to Individuals and Corporations (pp)

Jan 2012

Oct 2012

Data: percentage point

* Spread = Lending Rate -Funding Rate



Although still high in comparison with other economies, spreads on loans to individuals and corporationshave been declining in Brazil lately. The ormer went rom 34.9 p.p. in January 2012 to 27.8 p.p. in October

2012, while the latter went rom 18.5 p.p. to 15.0 p.p. in the same period.

0

5

10

15

20

25

30

35

40

45

50

CorporationsIndividuals

27.8 15.034.9 18.5

Ministry

of Finance

Inte

Housing credit stands out


69/137


12

69

erestRatesand

Credit

Individuals: Credit Transactions (R$ billion)

Real Estate Loans

Car Loans

Payroll Loans

Data: R$ billion

Source:Central Bank o BrazilProduced by:Ministry o Finance

Housing credit has showed an outstanding perormance in recent years, encouraging investment, growthand employment in the construction sector and other segments o the economy. Over the past 12 months,

total housing credit grew by 39%, reaching R$ 263 billion in October 2012, proving ar superior perormancethan other segments.

0

50

100

150

200

250

300

350

Oct

201

2

Jan20

12

Jan20

11

Jan20

10

Jan20

09

Jan20

08

263.0

319.0

184.3

Ministry

of Finance

Inte

Families keeping debt under control


70/137


12

70

restRatesa

nd

Credit

Families who cannot Aord to Pay their Debts (% o total)

Data: % o total

Source:CNC


The percentage o amilies unable to pay their overdue bills keeps alling, standing at a level below thesame period in 2010 and 2011.

5

6

7

8

9

10

11

Oct2

012

Sep20

12

Aug2

012

Jul2

012

Jun2

012

May

2012

Apr2

012

Mar

2012

Feb20

12

Jan2

012

Dec201

1

Nov2

011

Oct2

011

Sep20

11

Aug2

011

Jul2

011

Jun2

011

May

2011

Apr2

011

Mar

2011

Feb20

11

Jan2

011

Dec201

0

Nov2

010

Oct2

010

9.5

9.0

8.3

7.9

7.7

8.4

7.8

8.6

8.4

8.1

8.2

8.0

8.2

7.3

7.2

6.9

7.3

6.7

6.9

7.8

7.5

7.3

7.1

7.1

7.0

Ministry

of Finance

Inter

Earmarked credit at the oreront o credit expansion


71/137


12

71

restRatesa

nd

Credit

Outstanding Credit: Earmarked and Non-Earmarked Resources (R$ Billion and % o GDP)

% o GDP

Earmarked resources

Non-earmarked resources

Data: R$ Billion and % o GDP



In October 2012, the total credit volume in Brazil reached the amount o R$ 2.27 trillion, correspondingto 51.9% o GDP. Total non-earmarked resources recorded R$ 1.44 trillion, with annual increase o

14.2%, whereas total earmarked credit summed R$ 830 billion, a rise o 20.9% as compared to thesame period last year.

0

500

1,000

1,500

2,000

2,500

Oct

201

2

Oct

201

1

Oct

201

0

Oct

200

9

Oct

200

8

Oct

200

7

Oct

200

6

Oct

200

5

Oct

200

4

Oct

200

3

44.1%

44.5%

47.5%

51.9%

39.6%

33.6%

30.0%27.3%

25.7%24.3%

155 177190

222

262

337

435

565

687

830

248 310386

476619

848932

1,079

1,260

1,439

Ministry

of Finance

Inter

CAIXA contributes heavily to the expansion o housing credit


72/137


12

72

restRatesa

nd

Credit

CAIXA Housing Credit (R$ billion)

Disbursed

Contracted

Data: R$ billion

Source:Caixa Economica Federal


Since 2008, CAIXA housing credit has grown on a 40% yoy pace. The expected volume or 2012 representsan amount to around R$ 100 billion (2.4% o GDP).

0

20

40

60

80

100

2012*201120102009200820072006200520042003

4.1

5

.9 8.8

13.9

20

.7

22

.7

47

.1

75

.9

80

.1

10

0.0

4.2

4.4

7.1

10

.6

11

.7

18

.1

31

.4

55

.6

69

.6

92

.1

Ministry

of Finance

Inter

Sustained rates o credit growth in Brazil


73/137


12

73

restRatesa

nd

Credit

Credit Operations in Brazil (% o GDP)

Earmarked resources*

Non-Earmarked Resources

Data: % o GDP

* YTD October 2012Source:Central Bank o Brazil


Credit operations as a share o GDP have been growing in a sustained pace in Brazil. In October 2012,lending with non-earmarked unds represented 32.9% o GDP, while earmarked credit stood at 19.0% o

GDP. Mortgage has expanded at a rate o approximately 40% per annum, and now represents 6.0% o GDP.

0

10

20

30

40

50

60

2012

*

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

19.013.012.211.59.88.78.48.28.08.28.27.2

32.9

31.529.629.528.724.821.018.816.415.016.317.0

Ministry

of Finance

Intere

Growing capital market issuances


74/137


74

estRatesa

nd

Credit

Capital Market Issuance (R$ billion)

Other

CRIFIDC

Promissory Notes

FIP

Stocks + CDA

Debentures

Data: R$ billion

* YTD September o each year

Source:CVM


The volume o nancial instruments issued by corporations in the Brazilian capital market has beengrowing gradually, amounting to R$ 130 billion in September 2012. Excluding Petrobras issuance in

2010 (R$ 120.25 billion), there has been a gradual growth in the last our years, and it is already 86%higher than September 2009 level.

0

50

100

150

200

250

0.4

1.91.1

0.2

0.5

4.85.7

0.8

0.93.7

2.5

9.2

7.95.4

8.6

7.511.1

2.3

3.8

7.84.7

3.7

8.2 16.0

21.6

29.4

12.716.3

5.7

16.8 17.6

7.3

9.67.6

22.7

46.4 34.421.6

10.4

Sep20

12

Sep20

11

Sep20

10

Sep20

09

Sep20

08

Sep20

07

Sep20

06

Sep20

05

Sep20

04

Sep20

03

Sep20

02

Sep20

01

Sep20

00

Sep19

99

Sep19

98

Sep19

97

Sep19

96

Sep19

95

Ministry

of Finance

Intere

Signicant increase in Real Estate Credit


75/137


75

estRatesa

nd

Credit

Real Estate Investment - Public Oers - FIDC, CRI and FII (R$ billion*)

FIDC

CRI

FIIData: R$ billion

* Current values

Source:CVM


0

5

10

15

20

25

30

3.8

7.8

4.7

4.1

13.1

7.10.2 0.2 0.2 0.2 0.6 0.8 0.9 3.7 2.5 5.4

7.99.2

0.1 0.3

0.7

0.20.4

0.61.0

4.1 13.1

7.1

Sep20

12

Sep20

11

Sep20

10

Sep20

09

Sep20

08

Sep20

07

Sep20

06

Sep20

05

Sep20

04

Sep20

03

Sep20

02

Sep20

01

Sep20

00

0.3 0.3

1.0

2.6

5.0

8.67.5

11.1

2.3

3.8

7.8

4.7

Ministry

of Finance

Intere

Signicant increase in Real Estate Credit


76/137


76

estRatesa

nd

Credit

Real Estate Investment - Public Oers - LCI (R$ billion*)

Data: R$ billion

* Current values

Source:CVM

Produced by:Ministry o Finance-4

-2

0

2

4

6

8

10

12

14

16

12month

s

2011

2010

2009

2008

2007

Ministry

of Finance

Intere

Long term bank unding


77/137


77

estRatesa

nd

Credit

Financial Bills (R$ billion)

Data: R$ billion

* November 30, 2012Source:Cetip


Created in 2010, Financial Bills (FB) are securities issued by nancial institutions (IFs), representingimportant long-term bank unding. As minimum maturity is 24 months, FB have been allowing the

lengthening o credit operations (or both individuals and corporations). Also, FB are the most appropriateinstrument or matching maturities o assets and liabilities o IFs.

0

50

100

150

200

250

2012*20112010

31.0 148.5 235.0

Ministry

of Finance

Intere

Resilience in the Brazilian nancial market


78/137


2

78

stRatesa

nd

Credit

Basel index (% risk-adjusted assets)

Basel index in Brazil

Lower bound by BACEN

Basel index

Data: % risk-adjusted assets



The main Brazilian banks demonstrate comortable situation according to Basel Index. Strong regulationconsolidates the resilience o the Brazilian nancial system when acing systemic nancial crisis such as

those that occurred in the major world economies over the past our years.

0

4

8

12

16

20

Jun20

12

Dec

201

1

Dec

201

0

Dec

200

9

Dec

200

8

Dec

200

7

Dec

200

6

Dec

200

5

Dec

200

4

Dec

200

3

Dec

200

2

16.7 19.0 18.5 17.4 17.8 17.3 17.7 18.8 16.9 16.3 16.4

Ministry

of Finance

Interes

Measures or the development o the capital market


79/137


2

79

stRatesa

nd

Credit


The Development of Capital Markets

Financial Products Objective / Expected Result

Financial Bills-

tutions (Law 12,249/2010)

Expand credit by increasing long-term

Reducing the cost and simplifying the process of issuing

476/2009)

Increase credit to non-nancial rms

Receivables - CRI

Extension of investment and infrastructure debenturesIncrease the range of instruments avai-

--term investment in infrastructure

Reduction to 0% the income tax (Law 11,033/2004)

Reduce the cost and increase the

amount of resources available for real

estate companies

Real Estate Credit Line Reduction to 0% the in come tax (Law 11,033/2004)Reduce the cost and increase the fun-

ding to mortgages

Ministry

of Finance

Interes

Measures or the development o the capital market


80/137


2

80

stRatesa

nd

Credit


The Development of Capital Markets

Financial Products

Objective / Expected

Result

Investment Debentures

Decrease to 0 percent the rates of Financial

Transaction Tax and Income Tax to foreign in-

vestors (Law 12.431/11)

Encourage long-term Capital

Markets as a way to broaden

the sources of funding for

investments

Infrastructure Debentures

Decrease to 0 percent the rates of Financial

Transaction Tax and Income Tax to foreign in-vestors, to 0 percent of income tax to individual

domestic investors and decrease of 10 p.p. of

-

panies (Law 12.431/11)

Develop long-term CapitalMarkets as a way to broaden

the sources of funding for

investments


81/137

Brazilian Economy

OUTLOOK

Ministry ofFinance


FiscalPolicy

Ministry

of Finance

FiscalP

Fiscal consolidation avors investment


82/137


2

82

PolicyIn 2012 Federal Government used scal policy instruments in order to avoid downturns on domestic economy due to

the international crisis. The strategy also means to maintain scal undamentals in a sound situation.

The strong scal results allows the Public Sector Net Debt at 35.2 percent o GDP close to the lowest series values.Also, the continuous improvement in Federal Public Debt prole, both in terms o composition and maturity, has beenreected on the declining rates o external issuances. The issuance o Global 2023 bond, in September, resulted on thelowest rate o all t imes or a Brazilian external public debt bond.

Moreover, consistent scal situation has still placed Brazil in a privileged position when compared to other G20countries. It is expected the country should perorm one o the greatest primary surpluses in the group, and one othe lowest nominal decits.

Ministry

of Finance

FiscalPo

Economic growth with scal consolidation


83/137


2

83

olicy

Public Sector Fiscal Result (% o GDP)

Public Sector Primary Result

Central GovernmentPrimary Result

Subnational EntitiesPrimary Result (Statesand Municipalities)

State-owned CompaniesPrimary Result

Public Sector Nominal Result

Data: % o GDP

* On a 12-month basis up toOctober 2012



The public sector continues to pursue the scal target in line with scal responsibility principles, one othe pillars o Brazilian economic policy. In act, the scal and monetary policy coordination has sought tomitigate the eects o international crisis on domestic activity. Also, the projected targets will reduce evenmore both nominal decit and public debt.

-6

-5

-4

-3

-2

-1

0

12

3

4

0.

0

2

.6

2.

2

2012*2011201020092008200720062005200420032002

3.23.3

3.73.8

3.23.3

3.4

2.0

2.7

3.1

2.2

-4.4

-5.2

-2.9

-3.6 -3.6

-2.8

-2.0

-3.3

-2.5-2.6

-2.7

3.2 3.33.7 3.8

3.2 3.33.4

2.0

2.73.1

2.2

-4.4

-5.2

-2.9-3.6 -3.6

-2.8

-2.0

-3.3

-2.5 -2.6 -2.7

0.

1

0.

00.

8

0.6

0.

0

0.

10.

6

0.5

1.3

2.1

2.2

0.

1

0.

2

-0.

0

0.

1

0.9

1.0

0.

8

1.1

1.0

0.3

0.

20.7

0.8

2.2

2.3

2.7

2.6

2.2

2.2

2.4

0.

2

1.6

Ministry

of Finance

FiscalPo

Brazil stands out in the international scal scenario


84/137


2

84

olicy

Primary and Nominal Results (% o GDP)

Primary Result

Nominal Result

Data: % o GDP

* IMF orecasts - Fiscal MonitorOctober 2012. For Brazil, FocusMarket Report - Central Bank oBrazil (November 30, 2012)

Source:Central Bank o Brazil and IMFProduced by:Ministry o Finance

Brazilian sound scal results stand out in comparison advanced and other emerging countries. For 2012,Brazil has one o the strongest levels o nominal and primary results, both as a share o GDP.

-10 -8 -6 -4 -2 0 2Japan

India

USA

UK

France

Canada

Italy

Mexico

Brazil

China

Germany

Russia

-10 -8 -6 -4 -2 0 2 4Japan

USA

UK

India

Canada

France

China

Mexico

Russia

Germany

Brazil

Italy

-0.6

-2.2

-3.2

-5.2

-5.6

-6.5

-9.0

2.6

2.6

1.4

1.1

0.2

0.5

-0.4

-1.3

-2.3

-2.4

-2.7

-3.8

-4.7

-8.2

-8.7

-9.5

-10.0

Ministry

of Finance

FiscalPo

Brazilian public debt alls in adverse international scenario


85/137


2

85

olicy

Net Public Debt (% o GDP)

Mexico

Italy

USA

France

Germany

Brazil

Data: % o GDP

* IMF orecasts - Fiscal MonitorOctober 2012

Source:IMF


Even with the adverse international scenario, the countrys net debt as a percentage o GDP keeps on adeclining perspective, which helps to dierentiate the scal situation o Brazil in relation to many advancedand emerging economies.

20

30

40

50

60

70

80

90

100

110

2017

*

2016

*

2015

*

2014

*

2013

*

2012

*

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

56.23

39.58

26.56

80.23

89.44

98.68

Italy

France

Germany

MexicoBrazil

USA

Ministry

of Finance

FiscalPo

Brazil is improving its public expenditure prole


86/137


86

olicy

Central Government Primary Fiscal Result - Above the Line (% o GDP)

Data: % o GDP


** Including social securitybenets, allowance andunemployment insurance,

assistential benets (LOASand RMV) and BolsaFamlia Program

*** Including only investmentsclassied as GND 4

**** Including the SovereignWealth Fund constitution (2008)and the capitalization operationo Petrobras (2010)

Source:National Treasury Secretariat/Ministry o Finance/Senate


The Central Government scal results have gone through signicant changes since 2002, due to the positiveimpact o job ormalization on the economy, as well as the ocus on reducing inequalities. The growth in netrevenues has been directed to income transers to households and to public investments.

% GDP2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012*

Gross revenue 21.7 21.0 21.6 22.7 22.9 23.3 23.6 22.8 22.4 23.9 23.9

Transfers to states and municipalities 3.8 3.5 3.5 3.9 3.9 4.0 4.4 3.9 3.7 4.2 4.1Net revenue 17.9 17.4 18.1 18.8 19.0 19.3 19.2 18.9 18.7 19.7 19.8

Primary expenditure 15.7 15.1 15.6 16.4 17.0 17.1 16.4 17.7 17.4 17.5 18.2

- Payroll 4.8 4.5 4.3 4.3 4.5 4.4 4.3 4.7 4.4 4.3 4.2

- Income transfers to households** 6.8 7.2 7.6 8.1 8.4 8.5 8.1 8.7 8.5 8.6 9.1

- Investments*** 0.8 0.3 0.5 0.5 0.6 0.7 0.9 1.0 1.2 1.0 1.1

1.7 1.6 1.7 1.8 1.7 1.8 1.7 1.9 2.0 2.0 2.1

1.6 1.6 1.5 1.8 1.8 1.8 1.4 1.4 1.4 1.5 1.7

2.1 2.3 2.5 2.5 2.1 2.2 2.8 1.2 1.2 2.3 1.6

0.0 0.0 0.0 0.0 0.0 0.0 -0.5 0.0 0.8 0.0 0.0

Final primary results (above the line) 2.1 2.3 2.5 2.5 2.1 2.2 2.4 1.2 2.1 2.3 1.6

11.1 10.3 10.5 10.8 10.6 10.8 11.1 10.2 10.2 11.1 10.7Net revenue minus transfers

- Health and education

- Other expenses

Primary result without sovereing

wealth fund and onerous assignment

Impact of socereing wealth fund and

onerous assignment****

Ministry

of Finance

FiscalPo

Stability o the payroll expenditure and increase in transers


87/137


87

licy

Selected Public Expenditures (% o GDP)

Transers to amilies

Payroll Expenses and Changes

Data: % o GDP


Source:National Treasury Secretariat/

Ministry o Finance and Federal Senate

Brazilian Economic Outlook-17ed, December 2012

Documents

Transcript of Brazilian Economic Outlook-17ed, December 2012